Working Paper: CEPR ID: DP7618
Authors: Vittoria Cerasi; Barbara Chizzolini; Marc Ivaldi
Abstract: This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers.
Keywords: banking industry; competition; market structure; merger policy
JEL Codes: G21; L13; L59
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger (G34) | increased competition (L13) |
| pre-merger market structure (L19) | impact of merger on competition (L41) |
| market concentration (L11) | decreased competition (L49) |
| efficiency of merged banks (G21) | competition (L13) |